Bulls vs Bears: Who Wins In This Trading Range?

Bullish Bias

Bulls remain encouraged by economic data showing meaningful declines in inflation which most believe will lead to less aggressive Federal Reserve monetary policy in the months ahead.

Bulls are also pointing to signs of a resilient US consumers and still-steady spending despite relentless inflationary pressures.

Bearish Bias

Bears are pointing to recent comments by Fed officials warning that the inflation fight is far from over and that interest rates will likely need to move higher and stay there for longer than previously forecast.

While it is widely believed the Fed will scale back the size of its interest rate hikes starting at the December 13-14 meeting, bears argue that the Fed’s target rate is what matters more as that is what will ultimately influence stock valuations.

Critically, the higher interest rates climb, the higher bond rates will climb, making it increasingly tougher to justify higher stock prices.

In a speech yesterday, St. Louis Fed President James Bullard argued that the Fed’s interest rate hikes to date have had only a limited impact on inflation and that Fed rates may need to climb as high as 7% to be “sufficiently restrictive” to curb inflation.

Bears are also pointing to earnings estimates that are projecting little to no growth for at least the next couple of quarters.

Bottom line, investors are digesting a lot of conflicting signals and neither side has found a catalyst powerful enough to swing stocks in any one direction.

The debate over inflation and if it has peaked as of yet, and if the Fed will be aggressively slowing down remains the big argument and debate.

Data to Watch

There is not much on the economic calendar today with just Existing Home Sales and no real earnings of note.

Turning to next week, Thursday is Thanksgiving which means US stock, bond, and commodity markets will be closed.

On Friday, stock markets close early at 12 noon CST while most futures markets also have abbreviated hours.

Most of next week’s economic data is all crammed into Wednesday, including the “minutes” from the Fed’s November meeting. Also on the calendar for Wednesday is New Home Sales, Durable Goods Orders, flash PMI, and Consumer Sentiment.

There are some key earnings due out next week as well, including Dell, JM Smucker, SoftBank, Urban Outfitters, and Zoom on Monday; Analog Devices, Best Buy, Burlington Stores, Cracker Barrel, Dollar Tree, HP, Medtronic, Nordstrom, VMWare, and Warner Music on Tuesday; and Deere & Co. on Wednesday.